The total assets under management (AUM) at the world’s 500 largest asset managers reached USD 128trn at the end of 2023, according to research from the Thinking Ahead Institute.

Despite not yet reaching 2021 levels, this amounted to 12.5 per cent of annual growth, marking a “significant” recovery from the “major” correction the year before when AUM dropped by USD 18trn in 2022.

In addition to this, the research revealed the continued evolution of active versus passive AUM among the largest investment managers.

Indeed, for the first time, passive investment strategies accounted for more than one third (33.7 per cent) of AUM among the 500 largest firms, leaving almost two thirds of assets managed by the world’s largest managers in active strategies.

The research also pointed out that asset class allocations have evolved, with renewed growth of private markets.

Core equity and fixed income remained the dominant asset classes, comprising 77.3 per cent of total AUM (48.3 per cent equity and 29 per cent fixed income).

However, this marked a slight decrease of 0.2 per cent compared to the previous year, as investors turned to alternatives such as private equity and other illiquids in search of returns.

North America experienced the largest growth in AUM with a 15 per cent increase, followed by Europe, including the UK, which saw a 12.4 per cent increase. Meanwhile, Japan saw a decline with AUM decreasing by 0.7 per cent.

The Thinking Ahead Institute partially credited this increase to the recent dominance of US equities as performance drivers.

Due to this increase, North America now accounts for 60.8 per cent of the total AUM in the top 500 managers, with USD 77.8trn at the end of 2023.

Furthermore, at the top of the rankings, US managers comprised 14 of the top 20 and accounted for 80.3 per cent of the assets of the top 20.

The research also found that BlackRock remained the world’s largest asset manager, with its assets now above USD 10trn. Vanguard Group held a strong second place at almost USD 8.6trn AUM.

Both BlackRock and Vanguard Group remained “significantly” ahead of Fidelity Investments and State Street Global, which were ranked third and fourth respectively.

Commenting on the research, Thinking Ahead Institute director, Jessica Gao, said: “Asset managers have experienced a year of consolidation and change.

“While there has been a return to strong market performance, the last year has also seen forces of change.

“Macro factors have played a key part in the story, with notable highs in interest rates during 2023 exerting varied pressure on different asset classes, geographies, and investment styles.

“As this now gradually switches to a rate-cutting environment, equity markets are beginning to return positive performance also driven by improving expectations of earnings growth.

“Uncertainties looking ahead are now focused on geopolitical events and several major elections.

“We have continued to see net flows into passive strategies as they continue to offer a compelling value proposition, particularly in terms of lower fees and simplicity.”

However, Gao suggested growing market volatility and issues with concentration, which typically highlight the need for expertise to outperform benchmarks, may be a “source of caution” from some allocators to passive market trackers.

In addition to this, she said that asset managers continue to face “major pressure” to evolve their business models.

“Investment in technology remains essential not just to maintain a market edge, but also to meet evolving client requirements and expectation in reporting and customer service,” she continued.

“Increased competition, fee compression, and the growing demand for more personalised, technology-driven investment solutions are challenging traditional structures.

“We have witnessed notable successes of independent asset managers versus many of the more affiliated insurer-linked vs bank-linked asset managers.”

This article originally appeared on our sister title, European Pensions.

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